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Home Publications Blogs Beat the Press Does it Take Two Days for News from the U.S. to Reach Asian Financial Markets?

Does it Take Two Days for News from the U.S. to Reach Asian Financial Markets?

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Friday, 05 November 2010 04:48

That is what the NYT is asking readers to believe when it told them that a rally in Asian markets on Friday was due to the Fed's decision on Wednesday to engage in another round of quantitative easing. Usually, analysts think of markets as forward looking, anticipating events. The NYT is asking us to believe that the Asian markets are still rising in response to a widely anticipated move by the Fed that was announced two days earlier.

It is worth noting that explanations for movements in financial markets is always guess work. The markets do not tell anyone why they moved in the way they did. The movements are the result of millions of individual decisions, some carrying much more weight than others. In some cases it may be evident why a particular movement took place (e.g. a high inflation number leading to a drop in bond prices), but in many cases the explanations are an analyst's interpretation, which may well be wrong.

Comments (7)Add Comment
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written by Ron Alley, November 05, 2010 7:59
Why is it that journalists covering the stock market must always find a current event / breaking news explanation for action in the stock market but journalists covering the currency and commodities markets are content to report price action?
electrons are faster than NYT neurons
written by frankenduf, November 05, 2010 9:25
true dat- professional gamblers with heavy bankrolls and computers put bets in quickly either presciently or right after info.- maybe the NYT is racist and thinks Asia still has the pony express
Idea
written by James Allen, November 05, 2010 9:43
Dr. Baker,

I have an idea or suggestion for you.

You always complain about the media misreporting economic realities. Ok, I admit I agree with what you say.

But instead of just complaining about their problem, how about this?

Offer free training to people in the media.

1. Train them on Econ 101.
2. Train them on how they can go about getting better facts and better analysis of current (and past) economic situations. These people are INSANELY busy and pressed for deadlines. It's obvious to me that "press releases" aren't cutting it.
3. Offer on your website, free videos that cover these topics, in the same design that KhanAcademy does his 10-minute videos for basic math, science, etc.

Knowing some people myself that work in the media, most of these people are good people. They just may not know that they are doing things wrong.

My point, offer them HELP! Not just criticism.
Amen!
written by Jonathan, November 05, 2010 9:54
Thank you for bringing this up. Every time I hear of some news being credited for movement of markets, I think of the poor soul who had to come up with that obviously false explanation. The idea that prices will remain fixed without external inputs is pernicious hogwash.
Journalists Already Schooled in Ceteris Paribus and the Butterfly Effect
written by izzatzo, November 05, 2010 12:07
Any economist knows about the interaction of the "Butterfly Effect" and "Random Walk Theory".

Therefore these must always be included in any objective reporting on movements in the stock market.

For example, if the stock market goes up, always report that while stock prices are determined by random opposing forces other than ultra-fast hedge fund computers, it's always possible that the flapping wing of a single butterfly thousands of years ago could have resulted in the current upswing, ceteris paribus of course.
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written by diesel, November 06, 2010 5:29
But if the rational market theory were correct, there would be no need to attribute changes in the market to internal causes at all. Every possible contingency would be, in theory, calculated and its effects anticipated and accounted for. The concept of time itself would lose meaning as effect would follow cause as fast as the speed of thought. No state of being could evolve that had not already been envisioned, encoded, incorporated and thence discounted. This universal Mind would be One, omniscient and omnipresent, ever identical with itself as it consumes itself in an eternal roiling Now.

This novel construction by economists of God as Mind made flesh in the Rational Market is first hypostatization, then deification. They attribute tangible reality to a hypothetical construct, then elevate it to the status of a normative, guiding principle thereby unconsciously echoing the catechism of their youth in which a transcendent God becomes flesh and then ascends to sit in eminent judgement over all.
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written by zinc, November 06, 2010 8:59
"The movements are the result of millions of individual decisions, some carrying much more weight than others."

I think at a certain time in history this may have been a reasonably accurate assessment of stock market, or asset, prices in general. The American financial markets were deep, liquid, transparent, and regulated, providing a magnet for investment and security.

I am convinced that market prices have become disengaged from the fundamentals, manipulated by large banks trading for their own accounts with insider knowledge of a shared database of their customers investment plans. Who, with a straight face, can say they believe that huge financial firms, making 75+% of their "profit" on proprietary trading schemes aren't scamming the system ?

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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